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When valuing a company and you find that your estimated value of the firm differs substantially from the market value of the firm, what do you think could cause this big discrepancy? Explain the steps you will take to make sure that your estimate is reliable?
Harrison Company reported earnings of $4 million and its return on equity is averaging 14%. The company plans to retain 30% of its earnings. The company has a Beta of 1.8 and the average market return for companies with high risk is around 13%.
The 5 year US Government Treasury Bond rate is around 3% company. The company plans to pay a dividend of $2.0 today.
(a) If you are an investor, what will be the maximum price you will pay for the company stock?
(b) If the stock is selling at $25 will you buy it? Why? What growth rate is implied in this stock price?
(c) If investors believe that the company risk will decline, and therefore its beta will change with a change in risk, and with investors required rate of return of 12%; what is the beta of this stock given that the market risk premium remains the same.
OMG Inc. has 5 million shares of common stock outstanding, What weight should you use for preferred stock in the computation of OMG’s WACC?
At what discount rate is the NPV just equal to zero?
You need to compare and contrast the two portfolios and you need to make explicit reference to EMH in your analysis.
Initial investment = $1,000,000 machine, the project term is 6 years, sales for year 1 are estimated to be $1,000,000, and will grow by 7.5% per year through year 5, sales for year 6 = $500,000, variable costs are estimated to be 30% of sales & fixed..
The Efficient Market Hypothesis implies that:
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.82 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be w..
Both Bond Bill and Bond Ted have 9.4 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 5 years to maturity, whereas Bond Ted has 22 years to maturity. Both bonds have a par value of 1,000. If interest rates suddenl..
It has 700 million shares of common stock outstanding, and its stock price is $48 per share. What is Edelman's market/book ratio?
How much will a 10% increase in sales increase a firm's net operating income (NOI) and increase its net income (NI), if: its degree of operating leverage (DOL) = 2.0, and its degree of financial leverage (DFL) = 3.0? (b) its DOL = 2.5 and DFL = 4.0?
Your firm is contemplating the purchase of a new $550,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $54,000 at the end of that time. At what level of pretax cost ..
A portfolio that combines the risk-free asset and the market portfolio has an expected return of 7.1 percent and a standard deviation of 10.1 percent. The risk-free rate is 4.1 percent, and the expected return on the market portfolio is 12.1 percent...
While you were visiting London, you purchased a Jaguar for £35,000, payable in three months. You have enough cash at your bank in New York City, which pays 0.35% interest per month, compounding monthly, to pay for the car. Buy a certain pound amount ..
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